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Insurance is a crucial safeguard, promising financial support in the face of unexpected challenges. When you pay your premiums, you expect your insurance company to uphold their part of the agreement. However, sometimes insurance companies engage in practices that unfairly deny, delay, or diminish the benefits due to policyholders, a practice known as ‘bad faith’ insurance. Understanding these claims can empower Californians to protect their rights and seek rightful compensation.
Read on for a discussion of some of the many different types of bad faith insurance practices and what to do when presented with such a situation. If you are a California policyholder being mistreated by your health, life, or disability insurance company, contact Gianelli & Morris for a free case evaluation and consultation on your options with an experienced and dedicated California insurance law attorney.
Types of Bad Faith Insurance Claims
Insurance claims generally fall into two categories: first-party and third-party claims. In both types of claims, the insurer can be guilty of unjust practices such as delaying claim investigation, underpaying claims, or refusing to defend a claim without a valid reason. However, these categories differ based on the relationship between the insured, the insurer, and the injured party.
First-Party Bad Faith Claims
In a first-party bad faith claim, an insurance company unreasonably denies or devalues the claims made by its policyholders. This often occurs in health, life, and disability insurance contexts.
For instance, a health insurance company might deny coverage for a medically necessary procedure, citing it as experimental or investigational despite consensus in the medical community that the procedure is standard and effective. Alternatively, a life insurance provider might refuse to pay out the policy benefits upon the death of the policyholder, claiming a misrepresentation on the initial application that is insignificant or irrelevant to the cause of death.
In the case of disability insurance, bad faith may emerge as an unjust denial of long-term disability benefits. For example, the insurer might insist the policyholder isn’t disabled despite ample medical evidence to the contrary, or they may argue that the disability is due to a pre-existing condition not covered by the policy.
Third-Party Bad Faith Claims
Third-party bad faith claims involve an insurance company failing to settle a claim made against their insured policyholder within the policy limits, or refusing to defend the policyholder in court. While this situation is more common in auto or homeowner’s insurance, it can occur with professional liability coverages in the health industry.
For instance, a doctor’s professional liability insurer might refuse to settle a claim within policy limits, even when it’s clear the doctor was at fault for a patient’s injury. This could force the doctor into a lawsuit that could have been avoided, potentially resulting in a judgment exceeding the policy limits and endangering the doctor’s personal assets. In this case, the doctor, as the policyholder, could file a third-party bad faith claim against the insurer.
Recognizing and Responding to Bad Faith Insurance Claims
Understanding these types of claims is the first step in identifying bad faith practices by insurers. If you’ve had a claim denied or underpaid, or if your insurer failed to defend you in a third-party claim, consider consulting with an attorney to determine whether you have a bad faith claim. It’s also important to keep detailed records of all interactions with your insurance company, including phone calls, emails, and mailed correspondence.
Under California law, insurers owe a duty of good faith and fair dealing to their policyholders. If they violate this duty, policyholders can sue for damages, including emotional distress and punitive damages in appropriate cases. These damages can exceed the policy limits, as the harm inflicted on the insured is greater than just the benefits that should have been paid.
Call Gianelli & Morris for Help With Insurance Bad Faith Practices in California
Bad faith insurance practices can place Californians in challenging positions, leaving them without the financial support they expected and paid for. Being aware of the sorts of actions that amount to bad faith can help you identify unfair treatment and take appropriate action. Remember, you have the right to fair and just treatment from your insurance company, and legal avenues are available to protect those rights. In California, call Gianelli & Morris at 213-489-1600 for help.
